Bookkeeping is probably the last thing small business owners want to do. However, recording financial transactions is essential for the stability of a small business.
“It is essential that businesses have an accounting process in place, whether through an accountant or on their own. Keeping track of your financial transactions helps prevent the risk of unexpected cash flow problems and gives small business owners time to focus on their business growth goals,” said Jill Shalett of JKS Cloud Solutions, a Washington, DC-based online accounting firm for small businesses.
For small business owners, keeping track of finances and business transactions can seem difficult, but there are a few simple steps to keeping the books up to date effectively. Here are five tips for some best practices in bookkeeping.
1. Classify employees correctly
You may have different staff classifications, such as employees and contractors, but correctly identifying each staff member is important to maintaining the accuracy of your accounting records.
2. Keep backups of all financial records
If you have already seen the Seinfeld episode, “The Sniffing Accountant,” then you know how stressful it can be to track down financial records if the Internal Revenue Service comes to audit you. It is important for your business to keep detailed records of your books, especially in the event that you are subject to an audit or need to submit financial documents.
3. Set up an internal accounting process
While many small business owners hire outside services to keep track of their books, it’s important to have an internal accounting process to review your records and keep you up to date.
4. Review financial records monthly
Small businesses often have a lot of money flowing in and out. With transactions piling up, operationalize your finances by performing monthly reviews.
5. Separate business and personal expenses
An entrepreneur has business and personal expenses every day, but they need to be separated. When keeping clean financial records, it is important not to mix business and personal expenses by having separate bank accounts.
Renowned Visa International Founder, Dee Hock, said, “Making good judgments when you have complete data, facts and knowledge is not leadership, it’s accounting. Having a consistent accounting process in place won’t just support small businesses. This will help owners make the most informed decisions about their marketing and growth.